Joint Chiefs divide over cuts to commissary savings

By By TOM PHILPOTT

Published: Monday, May 12, 2014 at 11:19 AM.

All seven members of the Joint Chiefs of Staff testified Tuesday on the need to slow growth in military compensation and apply dollars saved to underfunded readiness accounts for training, equipment and spare parts.

But their united front for easing current budget burdens cracked over the notion of slashing savings for commissary shoppers.

Marine Corps Commandant Gen. James Amos called the proposal to cut commissary appropriations, from $1.4 billion yearly down to $400 million within three years, and the projected cut in average shopper savings from 30 percent down to 10 percent, “a sore point for me.”

At the same hearing, Navy Adm. James A. Winnefeld Jr., vice chairman of the Joint Chiefs, defended lowering the appropriation for the Defense Commissary Agency (DeCA) in increments, starting with $200 million next year, and suggesting the initial impact at least would be modest.

“We think DECA can find at least the first-year savings through efficiencies, not price increases, especially since we exempted them from the 20 percent staff cuts that everyone else is taking,” Winnefeld said.

All seven members of the Joint Chiefs of Staff testified Tuesday on the need to slow growth in military compensation and apply dollars saved to underfunded readiness accounts for training, equipment and spare parts.

But their united front for easing current budget burdens cracked over the notion of slashing savings for commissary shoppers.

Marine Corps Commandant Gen. James Amos called the proposal to cut commissary appropriations, from $1.4 billion yearly down to $400 million within three years, and the projected cut in average shopper savings from 30 percent down to 10 percent, “a sore point for me.”

At the same hearing, Navy Adm. James A. Winnefeld Jr., vice chairman of the Joint Chiefs, defended lowering the appropriation for the Defense Commissary Agency (DeCA) in increments, starting with $200 million next year, and suggesting the initial impact at least would be modest.

“We think DECA can find at least the first-year savings through efficiencies, not price increases, especially since we exempted them from the 20 percent staff cuts that everyone else is taking,” Winnefeld said.

Later, Winnefeld said first-year savings might be achieved if Congress would just repeal a law requiring commissaries to stock only brand names.

It’s a law “apparently lobbied for by the food industry,” Winnefeld said, which “takes money right out of our people’s pockets. It really does.”

Industry sources said brand names do generate higher profits for suppliers but the issue is more complex and less disturbing than Winnefeld implied. Brand name suppliers can afford to support DeCA with trade offs in store services such as free stocking of shelves and with product promotions.

DeCA provided a statement explaining that commissaries evolved by design into a brand-name system to ensure “worldwide availability of quality, recognizable brand-name products such as Kellogg’s cereals, Kraft cheeses”

A brand name “bestows a known quality assurance that our military families rely upon wherever they serve. Providing food security and a familiar ‘taste of home’ is particularly important for those stationed overseas,” DeCA explained.

Though it doesn’t carry generic items, DeCA since 2000 has operated a “best value items” program with name brand products “equal to or cheaper in price than the private labels found downtown,” the agency said.

Winnefeld assured senators that the budget plan to squeeze commissaries doesn’t order any store closures. The goal is efficiency.

“Whatever they can’t ring out of efficiencies would be a price increase,” he acknowledged. “So you might go from the 30-percent claimed advantage (in prices) right now…to 26 percent” that first year.

In looking at the competitiveness of stores in each market, 26 percent savings should ensure that most thrive. But “there are probably situations where you might close one or two,” Winnefeld said.

The plan overall, he said, is “a heck of a lot gentler than it looks.”

Winnefeld did not describe the impact on commissaries if DeCA takes a $500 million hit 2016 and $1 billion hit starting in 2017, as is also proposed.

Amos didn’t either. But he said a better solution to raising prices would be “to force DeCA to become more efficient and figure out how to do it, and don’t put that burden on the back of our young enlisted Marines.”

“We don’t need to turn our back” on making commissaries part of compensation reform, Amos said. “But I think we are going at it the wrong way. I think we ought to force DeCA to do some of the things that the services have had to do over the last year to try to live within our means.”

Base exchanges or department stores used to depend on appropriated dollars too, Amos said, but they were forced at some point to be run like businesses. Commissaries should be made to run as efficiently.

What the commandant did not mention, but that resale officials describe often and openly, is that exchanges, because they are run as businesses, deliver a level of savings about half what commissaries do. Indeed commissary prices are a magnet to bring more exchange shopping.

There were other signs in the hearing that the Joint Chiefs were out of their comfort zone in discussing the military retail store system.

Sen. Jack Reed, D-R.I., tried to sum up what he just heard on the commissary plan from Army Gen. Martin Dempsey, JCS chairman, and from Winnefeld whom Dempsey said “did most of the heavy lifting” on the issue.

“You would like to get efficiencies out of the system” and you believe DeCA “can generate these efficiencies,” Reed said. If DeCA can’t, “then they are going to have to curtail some of their operations.”

Given that, Reed asked Dempsey, have you “thought about a criteria for curtailment…something other than, ‘We’ll get some efficiencies’?”

“We have sir,” Dempsey said, “and I will tell you that commissaries has been the most difficult issue to wrap our arms around, because it’s very difficult to understand the functioning of the commissary, and the effect that a reduction in the subsidy will have, until you make the decision to do it.”

That’s why, Dempsey said, the first cut would be only $200 million. Even senior enlisted advisors, he added, “say ‘Let’s see what happens.’ Let’s see how much efficiency we can ring out of it in order to gain some savings.”

Because if “left unaddressed,” Dempsey warned, “we will be providing $1.4 billion in perpetuity” to subsidize grocery shopping, “and that just doesn’t seem to be a reasonable course of action.”

A day later, the House Armed Services Committee voted for only a $100 million cut in commissary funding in 2015. Its chairman, Rep. Harold “Buck” McKeon, R-Calif., said he rejects increasing out of pocket costs for service families. But McKeon, whose family once ran a popular chain of cowboy clothing stores, also said he knows “efficiencies can be made that reduce the cost of the program without increasing prices.”